CAGR turns a beginning value, ending value and elapsed time into one annualized growth rate. It is useful when two investments, business metrics or other values cover different time periods and need to be compared on the same yearly basis.
CAGR Calculator
Calculation details
| Starting value | - |
|---|---|
| Ending value | - |
| Time period | - |
| Growth multiple | - |
CAGR is a smoothed annualized rate between two endpoints. It does not show volatility or year-by-year results, and historical growth does not imply the same future rate.
How to Use the CAGR Calculator
Enter the value at the beginning of the period, the value at the end and the number of years between them. Both values must use the same units, but they do not have to be dollars.
- Starting value: The positive value at the beginning of the measurement period.
- Ending value: The value at the end of the period. A zero ending value produces a -100% CAGR.
- Years: Elapsed time in years. Decimal values can represent partial years; 18 months equals 1.5 years.
Headline CAGR is paired with total return and the absolute change in value, keeping the annualized result connected to the full-period change.
CAGR Formula and Example
Compound annual growth rate is the constant annual rate that would connect the two endpoints if growth occurred smoothly. The equivalent annualized-return formula can be expressed from total return and years held.
A starting value of 10,000 and ending value of 20,000 represent a 100% total return and a gain of 10,000 in the same units.
Annualizing that change over 10 years produces a CAGR of about 7.18%. In other words, a smooth 7.18% annual compound rate would turn 10,000 into approximately 20,000 over the same period.
Simple division gives the wrong annual figure. Dividing a 100% total return by 10 years suggests 10% per year, but that ignores compounding. A simple average can overstate annualized performance because it does not preserve the compounding relationship between the endpoints.
What CAGR Tells You – and What It Hides
CAGR is useful because it standardizes growth across time. Results covering three and ten years can be compared using annualized rates rather than total changes that span different holding periods.
Smoothing is also the main limitation. Two investments can finish with the same starting value, ending value and CAGR while taking completely different paths. One could rise steadily; another could experience large gains and losses before arriving at the same endpoint.
Historical CAGR is not a forecast. Investments involve risk and market fluctuations, so a past annualized rate should not be treated as a promised future return.
Short measurement periods deserve extra caution. Annualizing a large move over a few months can create an extremely high or low percentage because the formula asks what the same pace would look like over a full year.
CAGR vs. Total Return and Average Annual Return
Total return measures the complete percentage change from start to finish without adjusting for time. A move from 100 to 150 is a 50% total return whether it happens over two years or ten.
CAGR adds the time dimension. The same 50% increase produces a much higher CAGR over two years than over ten because the annual rate needed to reach the ending value is different.
Average annual return can mean something different again. A simple arithmetic average takes a set of yearly percentage returns and averages them, while CAGR is a geometric, compounded rate connecting the first and last values. FINRA explains that a simple average can overstate annualized performance when returns vary.
The CAGR definition provides a deeper look at the formula and spreadsheet methods. For forward-looking growth scenarios with ongoing deposits rather than a historical endpoint comparison, the Compound Interest Calculator is the more appropriate tool.
When CAGR Is the Wrong Return Measure
Endpoint CAGR assumes the starting and ending values are enough to describe the comparison. Deposits and withdrawals during the period break that assumption because part of the ending value may come from new cash rather than investment performance.
Consider a portfolio that starts at $10,000, receives another $10,000 contribution halfway through the period and ends at $22,000. A start-to-end CAGR would treat the full $12,000 increase as growth even though much of the change came from the contribution.
Cash-flow-aware return methods are better suited to such cases. Internal rate of return can incorporate the timing and amount of individual cash flows, while time-weighted approaches can separate investment performance from external deposits and withdrawals.
CAGR can also be used outside investing. Revenue, users, units sold or other positive business measures can be annualized with the same formula as long as the starting and ending values use consistent units and the time period is measured correctly.
Frequently Asked Questions (FAQs)
What does a 10% CAGR mean?
A 10% CAGR means a constant 10% annual compound rate would connect the entered starting and ending values over the selected period. Actual year-by-year growth may have been very different.
Can CAGR be negative?
Yes. An ending value below the starting value produces a negative CAGR. The percentage represents the steady annual rate of decline that would connect those endpoints.
Can CAGR be calculated for less than one year?
Yes. Enter the fraction of a year, such as 0.5 for six months. The result is annualized, so short periods can generate unusually large percentages and should be interpreted carefully.
Why must the starting value be greater than zero?
Because the formula divides ending value by starting value, a zero starting value makes the ratio undefined. Negative starting values also fall outside the standard real-number CAGR calculation used here.
Does CAGR include dividends?
Only when the ending value already reflects them in the way you intend to measure performance. Cash dividends, contributions or withdrawals that occur separately during the period are not modeled by a simple endpoint CAGR.
Is CAGR the same as compound interest?
No. CAGR solves backward for the annualized rate that connects two known values. Compound-interest calculations usually start with an assumed rate and project what a balance could become over time.